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Hurricane Ida Sends Gasoline Prices Up as it Knocks Refineries Offline

Gasoline futures climbed on Monday, while oil prices made modest moves in either direction, a day after Hurricane Ida made landfall in Louisiana, shutting down Gulf Coast refineries as it also knocked out the bulk of the region’s offshore oil and natural-gas production.

“Hurricane Ida has been bad for gasoline production as the shutdowns have represented 13% of refining capacity, which could be shut down for up to a week if there is extensive flooding and power outages,” said Jay Hatfield, chief executive and portfolio manager at Infrastructure Capital Advisors, in emailed comments.

A short-term spike in gasoline prices was likely to result from the storm, he said.

Gasoline for September delivery which expires at the end of Tuesday’s trading, rose 2.75 cents, or 1.2%, to $2.302 a gallon after trading as high as $2.369 on the New York Mercantile Exchange. The most active October gasoline contract was up 1.8 cents, or 0.9%, at $2.138 a gallon.

September heating oil also rose by a penny, or 0.5%, to $2.119 a gallon, with the October contract up nearly a cent, or 0.4%, at $2.115 a gallon.

West Texas Intermediate crude for October delivery rose 4 cents, or less than 0.1%, to $68.78 a barrel on the New York Mercantile Exchange. October Brent crude, the global benchmark, was up 13 cents, or 0.2%, at $72.83 a barrel on ICE Futures Europe, while the most actively traded contract, November was up 7 cents, or 0.1%, at $71.77 a barrel.

Analysts at S&P Global Platts Analytics said close to 4.4 million barrels a day of operating refinery capacity were in Ida’s path, largely in Louisiana, with at least half of that coming offline before the storm made windfall.

Colonial Pipeline, which provides the main artery for transporting fuel from Houston to the South and the East Coast, on Sunday shut down two lines that provide deliveries from Houston to Greensboro, North Carolina.

The company said fuel supplies remain available throughout the Southeast from its terminals along the supply route, while lines that service the Northeast from Greensboro to Linden, New Jersey, continue to operate as normal. The company expects operations to resume full service after it evaluates the damage to infrastructure.

Gasoline prices at the retail level haven’t shown much of a reaction to the storm. Monday’s average price for regular unleaded stood at $3.151 a gallon, compared with $3.148 on Sunday, according to AAA. A week ago, prices were higher, averaging $3.162.

The Bureau of Safety and Environmental Enforcement on Sunday also reported that 95.65% of the Gulf Coast’s crude-oil production, or 1.741 million barrels a day, was shut down, as well as 93.75% of the region’s natural-gas production.

“The big question is, which will make a quicker return — offshore oil production or refining capacity?” said Warren Patterson, head of commodities strategy at ING.

“If it is the former, we could start to see a buildup of crude oil inventories, which wouldn’t be a constructive signal for oil prices, although it would likely be supportive for refined product cracks,” he said. The crack spread is the differential between the price of a barrel of crude and the products refined from it.

Natural-gas futures edged lower, with the October contract down 12.2 cents, or 2.8%, at $4.266 per million British thermal units.

Ida’s impact may be “most significant” in the U.S. natural-gas market, said Peter McNally, global sector lead for industrials materials and energy at Third Bridge, in a recent note. “Louisiana is home to the Haynesville Shale and nearly half of the rigs drilling for natural gas in the country are there today.”

Looking ahead, the next “fundamental development for crude is the Sept. 1 OPEC+ meeting,” said Stewart Glickman, energy equity analyst at CFRA.

The Organization of the Petroleum Exporting Countries and the group’s allies, known as OPEC+ collectively, previously agreed, after a standoff between Saudi Arabia and the United Arab Emirates, to begin raising output in increments of 400,000 barrels a day beginning this month, until existing output curbs are fully unwound.

“While the U.S. shut-ins are likely to be a week or so (absent major damage), this may provide cover for approving the incremental OPEC crude,” said Glickman.

The Biden administration earlier this month called on OPEC+ to further boost output, but analysts said a response appears unlikely.

“We do not foresee any fireworks from the group following the more recent recovery in prices. And we expect that they will continue the easing of their supply cuts as planned,” Patterson said.

Source: Marketwatch